The level of audience erosion over the last 5-10 years is staggering, and there is risk that for many of Viacom's networks, cultural relevance has faded too far. However, its networks generate healthy FCF ($3.5bn OpFCF in FY16) and benefit from sticky affiliate revenues (~45% of total Media Networks).
Today's consumers are seeing greater choice than ever in the evolving entertainment landscape, and only have an appetite to pay for content they value. Viacom has stated that its top six networks represent close to 85% of affiliate revenues.
Millennials have an even lower tolerance for advertising than the broader population, making cutting ad load even more imperative for Viacom. In our view, Nickelodeon is the crown jewel and has seen some content success of late on both Nick and Nick Jr. We argue building this network(s) is the key to long-term durability of the company, and Viacom may need to (at least for now) leave its content exclusive to its networks and apps.
